Fixed vs. Variable Energy Tariffs
With energy prices at record highs, there’s no better time than now to take a look at your energy suppliers and see if you have the best deal possible. By making sure you're on the right tariff, you'll be saving yourself a pretty penny.
With energy prices at record highs, there’s no better time than now to really look at your energy suppliers and see if you have the best deal possible, as well as being on the correct tariffs for your needs. It can be overwhelming when looking at different utility suppliers and the seemingly endless choice of tariffs whilst trying to decide whether to stay with your current supplier or switch. Let’s take a look at the two main types of energy tariffs to see what might be the best for your individual requirements.
What is an energy tariff?
An energy tariff is how a provider such as British Gas or SSE charges you for the supply of utilities, namely gas and electricity. The two types of tariffs available are fixed-rate tariffs and variable-rate tariffs. A fixed-rate tariff will lock in the price you pay for energy per unit for a period of time - usually for a minimum contract length such as twelve months -and can be up to several years if required. A variable tariff will change depending on the overall market price for energy and does not have a minimum contract period in most cases.
What is Ofgem?
Ofgem is the Office of Gas and Electricity Markets, a regulatory body which ensures that utility companies are offering fair prices and offering value for money to consumers. They also make sure that there’s enough supply of gas and electricity to meet demand. Further, they are responsible for setting the price cap on energy prices.
Pros of a fixed-rate tariff
Fixed price per unit
The main benefit of a fixed tariff is that the rate you pay will not fluctuate, and will remain the same throughout the course of the term set. Therefore, even if energy prices were to increase, it will not affect you.
Wider choice
The other benefit is that there tends to be more choice available when it comes to finding a good deal, and fixed tariff deals are generally cheaper as customers are more likely to sign up for a longer contract which gives the supplier some certainty, thus being able to offer consumers a more attractive rate.
Easy budgeting
Budgeting is far easier with a fixed tariff. You’ll know exactly what to expect due to the unit rate and standing charges staying the same during your contract. Therefore, you can plan for periods where you know your usage will increase or decrease and budget accordingly.
Cons of a fixed-rate tariff
Prices don’t move with the market price
The main drawback is that if the wholesale price of energy falls, you won’t benefit from it as your tariff will be fixed. So, if prices drop considerably, you might miss out on some savings.
Exit penalty
If, for some reason, you need to terminate your contract before the end of the term, you will have to pay an exit fee.
Costly roll on
At the end of your term, if you don’t renew, you’ll simply be rolled over onto the supplier’s standard variable tariff (SVR) which is usually the most expensive plan the company has. Therefore it’s crucial you remember to switch to another fixed tariff deal with the same supplier or shop around for another deal to sign up for when your contract finishes.
Pros of a variable tariff
Price is linked to the overall market price
A drop in the wholesale price of energy means suppliers will also reduce their prices. As a customer on a variable tariff, this will mean cheaper bills - assuming your usage stays the same - as each unit cost of energy will be cheaper.
No exit fees
Most variable tariff contracts don’t have any exit penalties, so you’re free to switch to another supplier or deal whenever you like. This means you have maximum flexibility.
Cons of a variable tariff
Low prices not guaranteed
Low prices on a variable energy tariff aren’t guaranteed to stay that way. At short notice, prices can suddenly increase. So, with a constantly changing unit price for your gas and electricity supply, it can be tricky to budget.
The constant need to shop around
When on a variable tariff, it’s best to constantly check the latest market deals and prices to make sure you’re getting the best possible deal. As a result, variable tariffs can cost more because there are likely to be periods where you simply forget to move to a better deal with a different supplier.
Summary
Whether you opt for a fixed or variable tariff will depend on your circumstances and individual requirements. For example, someone in a short-term rental contract may choose to go with a variable tariff, as they can exit without any penalty and because it’s less of a commitment. Plus, they can keep track of the best possible deals and ensure they have the lowest price possible for a variable contract.
However, if you’re someone who’s just bought their own property, it’s likely you’ll be there for several years at least. As such, you’ll want to lock in the best possible fixed rate and not have to worry about constantly monitoring energy prices. This way, it also offers you peace of mind knowing that even if wholesale prices rise, your per-unit cost will not.
At Just Move In, we’re here to help you find the best possible solution for your needs, so please get in touch and have a chat with one of our team who’d be more than happy to assist you.